Foreign direct investment (FDI) is essential to Canada’s economy, but Ottawa balances openness with protective screening. Investors must understand a two-track reality: Canada broadly welcomes capital, jobs and technology, while exercising targeted scrutiny where national interest, security or strategic sovereignty are at stake. This article explains the legal framework, strategic sectors that attract attention, practical navigation steps, timelines and illustrative cases to help foreign buyers plan transactions that involve Canadian assets.
The legal and institutional framework
- Investment Canada Act (ICA): The ICA governs federal screening of foreign acquisitions of control of Canadian businesses. It includes a traditional “net benefit” review for certain transactions and a separate, threshold-free national security review power. The implementing authority is the federal department responsible for economic development and industry policy.
- Net benefit test vs. national security review: The net benefit test applies to acquisitions above monetary thresholds and evaluates economic benefits to Canada (e.g., investment, employment, R&D). The national security review can be triggered for any investment, regardless of value, if officials believe the transaction could be injurious to national security.
- Provincial and sectoral regulators: Provincial rules and sector-specific regulators also matter. Examples include provincial land ownership or farmland rules, telecommunications licensing and spectrum controls, Fisheries and Oceans for marine infrastructure, and aviation regulators for airport or air-transport assets.
- State-owned enterprises and sensitive parties: Investments by state-owned enterprises or foreign investors with close ties to foreign governments typically attract extra scrutiny and may face more intensive national security analysis.
Which industries face the closest examination
- Critical minerals and energy: Canada holds abundant mineral and hydrocarbon resources, and transactions tied to rare earth elements, lithium, nickel, uranium, or major oil and gas assets receive heightened scrutiny due to their strategic importance and supply-chain impact.
- Telecommunications, data and digital infrastructure: Control of networks, data centers, or entities managing substantial volumes of personal or sensitive information is closely monitored because of privacy concerns and espionage risks.
- Defense and dual-use technologies: Aerospace operations, cybersecurity enterprises, advanced manufacturing activities, and suppliers serving the armed forces consistently rank as top priorities for national security reviews.
- Transport and critical infrastructure: Assets such as ports, rail networks, bridges, and airports carry direct implications for national security and public safety.
- Real estate in sensitive locations: Residential and commercial properties situated near military bases, major infrastructure, or essential government facilities face monitoring, and several provinces have enacted taxes or restrictions targeting foreign residential purchasers.
- Food, agriculture and water resources: Oversight applies to farmland, processing sites, and food supply chains, given their relevance to food security and provincial policy considerations.
Key practical steps for foreign buyers
- Screen early: As soon as a target is identified, assess whether the transaction triggers the ICA net benefit threshold or could be subject to a national security review. Early screening avoids surprises and closing delays.
- Engage Canadian counsel and advisors: Local legal, regulatory and industry specialists should advise on filing obligations, sector-specific permits, stakeholder expectations and likely conditions.
- Pre-notification consultations: Use confidential pre-notification meetings with the reviewing authority to clarify issues and surface potential national-security flags. This can shorten formal review timelines and help design mitigations.
- Consider deal structure: Minority investments, joint ventures, or phased acquisitions can avoid thresholds that trigger net-benefit reviews. However, national security review powers are threshold-free and can still apply.
- Prepare mitigation proposals: Be ready to offer voluntary undertakings — e.g., Canadian board representation, commitments to maintain R&D or employment levels, data localization or restricted access to certain facilities.
- Coordinate with provincial authorities: Real estate purchases, farmland acquisitions and resource licenses often require provincial clearances or registrations.
- Plan for timing and conditionality: Incorporate regulatory timelines and the possibility of conditions, remedies or divestiture orders into closing plans and financing arrangements.
Timelines, costs and likely outcomes
- Timelines: Review periods can span from several weeks to many months. Initial assessments by staff are often completed within roughly 30–90 days, while more intricate net-benefit evaluations or national security reviews may stretch well past that window. Lengthy mitigation discussions can further prolong the process. It is prudent to anticipate that regulatory scrutiny will exceed the duration of a standard commercial closing.
- Costs: Fees for legal counsel, advisors and compliance efforts can be significant. When mitigation is imposed, carrying out and supervising required measures (for example, data ring-fencing or establishing Canadian subsidiaries) introduces continuing costs.
- Outcomes: Regulatory decisions may result in unconditional clearance, conditional approval with undertakings, orders to divest, or an outright ban. National security authority has, on occasion, been exercised to stop deals entirely.
Illustrative cases and lessons
- CNOOC’s acquisition of Nexen (2013): A major cross-border purchase by a Chinese state-owned enterprise that received approval following a public review process. The transaction moved forward with commitments designed to safeguard Canadian operations and investment levels. This example shows that state-affiliated buyers can prevail when they present tangible economic advantages and offer credible assurances.
- Blocked transaction: a proposed takeover of a major construction firm (2018): The federal government halted an attempted acquisition of a Canadian infrastructure company by a prominent foreign state-owned enterprise due to national security concerns. The outcome demonstrates that firms involved in critical infrastructure work may face intervention even if the bidder expresses willingness to adopt mitigation measures.
- Real-estate and provincial measures: British Columbia and Ontario implemented substantial non-resident property taxes and registration obligations in response to mounting housing affordability issues. These provincial actions show that, despite federal investment rules allowing a transaction, regional taxes and restrictions can significantly influence overall deal economics.
